Reserve Cotton Auctions Heat Up: 100% Transaction Rate Signals What for the Cotton Textile Industry?

On July 28, reserve cotton auctions once again closed with a 100% transaction rate, marking the ninth consecutive trading day of full sales. The total listed volume of 8,006.392 metric tons was entirely sold, with an average price of 17,187 yuan per ton. Although this represented a drop of 88 yuan from the previous day, the premium rate remained elevated, indicating that downstream spinning mills' restocking appetite has not cooled amid the price correction.

Structural Divergence Behind the Data

A closer look at the breakdown reveals a market that is far from uniform. Xinjiang cotton averaged 16,725 yuan per ton, down 151 yuan from the previous day, with a converted 3128 price of 17,395 yuan and an average premium of only 1,220 yuan per ton. Imported cotton averaged 17,384 yuan per ton, down just 23 yuan, with a converted 3128 price of 17,970 yuan and an average premium of 1,795 yuan per ton. The premium gap of 575 yuan per ton signals a clear preference among spinners for imported cotton.

This divergence is rooted in quality-versus-cost trade-offs. Imported cotton typically offers more stable fiber length and strength, making it ideal for mid-to-high-end yarn production. Although Xinjiang cotton is cheaper, the narrowing premium suggests spinners' recognition of its cost-effectiveness is waning at the margin. For export-oriented mills, the stability of imported cotton means lower defect rates and more reliable delivery schedules—a premium they are willing to pay.

Industry Chain Transmission: Can High Prices Last?

Since the current round of reserve cotton releases began on July 20, cumulative transactions have reached 56,138.551 metric tons, all at 100% transaction rates. This phenomenon is not isolated—when reserve cotton prices exceed market expectations, spinners still bid aggressively, indicating tight spot market availability and low mill inventories.

However, caution is warranted. High cotton prices are squeezing margins in the spinning segment. With raw material costs accounting for over 70% of yarn production costs, sustained cotton prices above 17,000 yuan per ton may push the processing margin for 32-count carded yarn close to breakeven. Some small-to-medium spinners may be forced to cut output or shift to blended products to mitigate cost pressures.

For weaving and garment sectors, the transmission of cotton price increases lags. Fabric buyers have not yet felt the full cost impact, but if cotton prices remain elevated through late August, the autumn restocking season will face upward pricing pressure. Export orders typically have limited room for price renegotiation, raising the risk of order migration to Southeast Asia.

Policy Signals and Market Expectations

The sustained high volume of reserve cotton releases sends a clear signal of supply stabilization and price moderation. If the daily release pace of around 8,000 tons continues, cumulative supply in August could exceed 200,000 tons, materially easing supply tightness and tempering price expectations.

Yet the stubbornly high premium rates suggest the market does not foresee a sharp downturn. Xinjiang cotton premiums of 1,220 yuan and imported cotton premiums of 1,795 yuan are both significantly above 2025 levels. This is supported by multiple factors: global cotton production shortfall expectations, RMB exchange rate volatility, and the kickoff of autumn-winter orders.

Practical Recommendations

For Buyers - Monitor reserve release pace: if daily volumes stay above 8,000 tons and premium rates narrow consecutively, consider slowing purchases to wait for price correction windows. - Differentiate between Xinjiang and imported cotton: with a current price gap of about 657 yuan per ton, if imported cotton premiums remain higher, prioritize Xinjiang cotton to save costs. - Lock in forward orders: for confirmed autumn-winter orders, secure cotton procurement prices or use futures hedging to protect margins.

For Export Enterprises - Assess price transmission cycles: the lag from reserve cotton transactions to yarn cost changes is about 2-3 weeks. Update quotation sheets every ten days to avoid loss from delayed cost reflection. - Watch imported cotton premiums: premiums as high as 1,795 yuan per ton signal tight supply of high-quality cotton. Sign forward contracts with overseas merchants early to secure supply. - Mitigate order migration risk: if cotton prices stay above 18,000 yuan per ton, Southeast Asian yarn price advantages will widen. Optimize product mix toward differentiation and higher counts.